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Crypto markets may be calmer after October’s deleveraging, but beneath the surface, liquidity remains absent.
Given by Search CoinDesk shows that the depth of the order book in the main centralized exchanges remains structurally lower, suggesting a more cautious market-making environment at the end of the year.
This environment paves the way for thinner markets and stronger movements, increasing the likelihood that routine trade flows will produce excessive price swings.
Disappearing liquidity
U The October liquidation cascade wiped out billions in open interest in a matter of hours, but it also triggered something more subtle and far more persistent: an exodus of resting liquidity from centralized exchanges.
The damage is more apparent in the two assets that still have the entire market. At the beginning of October, shortly before the elimination, the average cumulative depth of the bitcoin at 1% from the average price was close to $20 million in the major places, according to the data of CoinDesk Research.
As of Nov. 11, that same measure had fallen to $14 million, a drop of nearly a third, the data showed.
Market depth is a metric used by traders to assess the level of liquidity in a market. At a 1% interval, this evaluates how much capital will be needed to move the market by 1%, taking into account the cumulative value of all limit orders in the book.
A thin book could deter traders looking to buy or sell higher volume, as it quite often causes a slippage, which is where the price deviates to an area where liquidity is sufficient.
The depth at 0.5% from the average price fell from close to $15.5 million to just under $10 million, while the depth at the widest 5% fell from more than $40 million to just under $30 million.
Ether shows an almost parallel pattern. On October 9, the depth of ETH at 1% from the average price sat just above $8 million, but at the beginning of November it was back to just under $6 million.
There was also a significant drawdown in depth in the 0.5% and in the 5%, creating a completely new market structure.
According to CoinDesk Research, this failure of BTC and ETH liquidity to recover is not a quirk of timing but a structural change.
The analysts concluded that both assets suffered a significant decrease in average depth that is not resolved, “suggesting a deliberate reduction in market engagement and the emergence of a new lower baseline for stable liquidity in centralized exchanges.”
This is not only impactful to directional traders with long or short bias, but also for neutral delta companies and volatility traders. Delta neutral firms rely on strategies such as harvesting an arbitrage spread on financing rates; however, a lack of liquidity means that the size has to be reduced, potentially eating into profits.
Volatility trades can have mixed results as the lack of liquidity can ultimately lead to violent swings. This is ideal for those who operate an options straddle, which involves the purchase of a call and put option with the same expiration and strike price, since wide price movements in either direction will yield a profit.
Altcoins rebound from the panic, but not to the force before
The liquidity crunch contrast between BTC and ETH versus the major altcoins is stark.
A basket composed of SOL, XRP, ATOM and ENS experienced an even deeper liquidity collapse during the October washout, with a 1% deep dive from around $2.5 million to around $1.3 million overnight. However, this group performed a rapid technical recovery, with market makers quickly restoring order as volatility receded.
That rebound, however, did not restore liquidity to its early October levels. The depth in the 1% band remains about $1 million below where it was before the farm, and the depth in wider bands shows the same pattern of partial repair without full restoration.
CoinDesk Research believes that this divergence reflects two fundamentally different liquidity regimes: altcoins experienced a knee-jerk collapse that forced market makers to re-enter aggressively once the market stabilized, while BTC and ETH suffered a slower and more deliberate withdrawal of liquidity as participants assessed risk.
“The altcoin collapse was a temporary event, driven by panic that required a quick restoration of order,” the analysts observed, adding that larger assets “are subject to more deliberate and sustained risk positioning.”
The pattern, a violent drop, a quick rebound and a lower floor, suggests that altcoins have been unknown, while bitcoin and ether have been re-priced in terms of market commitment.
Macro is not a friend
If liquidity providers were already hesitant after the October dislocation, the macro climate gave them little reason to take risks.
CoinShares data showed $360 million in net outflows from digital asset investment products during the week ending Nov. 1, including nearly $1 billion withdrawn from bitcoin ETFs — one of the heaviest weekly outflows of the year.
The United States accounted for more than $430 million of these flows, reflecting the sensitivity of American institutional flows to the changing communication of the Federal Reserve on interest rates.
Market makers tend to reduce inventory, widen spreads and limit posted size when macro uncertainty clouds directional conviction. The persistence of ETF flows, the ambiguity around December’s rate policy and the general lack of strong fundamental catalysts contributed to a cautious stance.
What does it all mean?
The practical consequence of this reduced depth is that the crypto markets are more fragile than the price charts imply.
Simply put: very sharp moves forward for traders.
It now takes significantly less capital to move spot markets in either direction. Large fund trading, arbitrage desks, or ETF intermediaries can create a disproportionate impact, while even routine macro releases, such as an unexpectedly strong CPI print, a change in the Fed’s commentary, or more ETF flows, risk producing exaggerated price reactions.
Lower liquidity also leaves the system more vulnerable to liquidation cascades. If open interest quickly rebuilds, as it often does during calm periods, the absence of a large order book increases the likelihood that relatively small shocks could trigger another wave of forced selling.
In a more benign scenario, thin liquidity can also amplify upside moves. If risk appetite suddenly returns, the same lack of resting liquidity could fuel excessive rallies.
A fragile market ahead
What is clear from the data is that the liquidation of October did more than unwind overleveraged positions. It reshaped the structure of the crypto market in a way that has yet to be resolved.
Bitcoin and ether remain locked in a new, thinner liquidity regime. Altcoins, although faster to recover, are still far from the levels that characterized at the beginning of October.
As the year approaches, crypto is now in a much more fragile position than it was at the beginning of October.
Whether this liquidity void becomes a brief chapter or a defining feature of the next phase of the market remains to be seen, but for now, that hole remains, and the market continues to find a way to work around it. – with great caution.
